<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number 0-9812
GREASE MONKEY HOLDING CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0321320
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
216 16th Street Mall, Suite 1100
Denver, Colorado 80202
----------------------------------------
(Address of principal executive offices)
(303) 534-1660
---------------------------
(Issuer's telephone number)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Outstanding at
Class November 3, 1997
----------------------------- ----------------
Common Stock, $0.03 par value 4,618,183 shares
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED SEPTEMBER 30, 1997
FORM 10-QSB
PART I FINANCIAL INFORMATION
Consolidated Statements of Operations........................... Page 1
Consolidated Balance Sheets..................................... Page 2
Consolidated Statements of Stockholders' Equity................. Page 4
Consolidated Statements of Cash Flows........................... Page 5
Notes to Consolidated Financial Statements...................... Page 7
Management's Discussion and Analysis or Plan
of Operation.................................................. Page 10
PART II OTHER INFORMATION
Legal Proceedings............................................... Page 16
Exhibits and Reports on Form 8-K................................ Page 16
Signatures...................................................... Page 17
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenue:
Royalty fees........................................... $ 828,823 827,617 2,659,034 2,392,110
Franchise sales - center openings...................... 84,000 75,400 172,201 75,400
Product and equipment revenue.......................... 230,971 243,556 574,508 574,164
Sales by Company-owned Centers......................... 3,829,962 3,817,786 11,216,333 10,881,425
Leasing revenue........................................ 388,085 361,590 1,166,957 1,062,392
Other.................................................. 123,769 19,103 325,416 115,499
---------- --------- ---------- ----------
5,485,610 5,345,052 16,114,449 15,100,990
---------- --------- ---------- ----------
Operating Expenses:
Franchise costs - center openings...................... 19,791 20,985 41,209 20,985
Product and equipment costs............................ 115,369 130,626 223,762 241,342
Company-owned Centers.................................. 3,270,698 3,216,101 9,590,148 9,320,816
Leasing expense........................................ 408,958 335,040 1,161,294 1,019,210
General and administrative expenses.................... 1,216,626 1,103,471 3,864,259 3,357,714
Provision for credit losses............................ 30,000 31,761 82,141 90,107
Depreciation........................................... 175,761 177,236 503,974 514,731
Amortization........................................... 72,577 64,222 207,614 180,734
---------- --------- ---------- ----------
5,309,780 5,079,442 15,674,401 14,745,639
---------- --------- ---------- ----------
Operating income......................................... 175,830 265,610 440,048 355,351
---------- --------- ---------- ----------
Other income (expense):
Gain (loss) on sale/disposition/closure of centers..... (282,929) (76,887) (300,392) (80,299)
Undeveloped franchise licenses canceled................ - - - 27,563
Interest income........................................ 15,302 7,795 50,976 17,160
Interest expense....................................... (189,408) (166,314) (555,525) (483,545)
---------- --------- ---------- ----------
(457,035) (235,406) (804,941) (519,121)
---------- --------- ---------- ----------
Net income (loss)........................................ $ (281,205) 30,204 (364,893) (163,770)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings (loss) per common share (Note 5)................ $ (0.07) * (0.10) (0.06)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Weighted average shares outstanding...................... 4,442,184 4,364,264 4,384,802 4,355,565
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
* Less than $.01 per share.
(UNAUDITED)
1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 780,945 324,745
Restricted cash including certificates of
deposit......................................................... - 34,927
Accounts receivable, net of allowance for
doubtful accounts of $337,183 at September 30,
1997, and $252,795 at December 31, 1996......................... 1,073,243 1,042,259
Current portion of notes receivable,
net of allowance for uncollectible amounts...................... 281,687 500,705
Current portion of net investment
in direct financing leases...................................... 193,438 225,053
Inventories....................................................... 862,404 887,203
Prepaid expenses and supplies..................................... 72,826 125,208
----------- ----------
TOTAL CURRENT ASSETS............................................ 3,264,543 3,140,100
----------- ----------
Property and Equipment, at Cost, Pledged:...........................
Land.............................................................. 695,917 445,917
Buildings (including buildings under capital leases).............. 6,334,541 5,728,492
Furniture and fixtures............................................ 587,615 562,235
Leasehold improvements............................................ 713,311 662,001
Machinery and equipment........................................... 1,722,757 1,735,844
----------- ----------
10,054,141 9,134,489
Less accumulated depreciation and
amortization.................................................... (3,986,281) (3,540,784)
----------- ----------
NET PROPERTY AND EQUIPMENT...................................... 6,067,860 5,593,705
----------- ----------
Other Assets:.......................................................
Net investment in direct financing leases......................... 3,502,427 3,499,162
Notes receivable, net of allowance for uncollectible
amounts......................................................... 222,081 270,761
Deferred franchising costs........................................ 253,401 211,849
Goodwill and covenants not to compete, net
of accumulated amortization of $1,147,922 at
September 30, 1997, and $966,729 at December 31, 1996........... 2,659,157 2,401,586
Other assets, net of accumulated amortization of $157,175 at
September 30, 1997, and $141,355 at December 31, 1996........... 196,935 99,960
----------- ----------
TOTAL OTHER ASSETS.............................................. 6,834,001 6,483,318
----------- ----------
$16,166,404 15,217,123
----------- ----------
----------- ----------
</TABLE>
(UNAUDITED)
(continued on next page)
2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 972,590 1,043,149
Accrued salaries and wages........................................ 221,615 203,073
Other accrued liabilities......................................... 354,154 347,158
Current portion of long-term obligations.......................... 767,881 1,066,283
Current portion of obligations
under capital leases............................................ 448,857 427,917
----------- ----------
TOTAL CURRENT LIABILITIES....................................... 2,765,097 3,087,580
----------- ----------
Long-term Obligations............................................... 4,057,052 3,126,148
Obligations Under Capital Leases.................................... 6,976,199 6,649,017
Deferred Franchise Sales Revenue.................................... 977,670 907,371
Stockholders' Equity:
Series C Preferred stock, stated value of $100.00
per share, 20,896 shares issued and outstanding at
September 30, 1997 and December 31, 1996......................... 2,089,638 2,089,638
Common stock, par value $.03, 20,000,000
shares authorized, 4,618,183 and 4,379,860,
shares issued and outstanding at September 30,
1997 and December 31, 1996, respectively........................ 138,545 131,396
Capital in excess of par value.................................... 6,178,793 5,877,670
Accumulated deficit............................................... (7,016,590) (6,651,697)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................... 1,390,386 1,447,007
Commitments and Contingencies.....................................
----------- ----------
$16,166,404 15,217,123
----------- ----------
----------- ----------
</TABLE>
(UNAUDITED)
3
<PAGE>
<TABLE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Preferred Stock --------------------------------
---------------------- Capital in
Number of Number of Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
--------- ---------- --------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 20,958 $2,095,838 4,336,764 $130,103 5,773,248 (6,074,574) 1,924,615
Issuance of common stock pursuant
to employee benefit plan.......... - - 40,616 1,219 45,025 - 46,244
Conversion of Series C Preferred
stock to common stock,
including payment of
accumulated dividends............. (62) (6,200) 2,480 74 5,397 - (729)
Increase in fair value of
warrants extended................. - - - - 54,000 - 54,000
Net loss........................... - - - - - (577,123) (577,123)
-------- ---------- --------- -------- --------- ---------- ---------
Balance at December 31, 1996....... 20,896 2,089,638 4,379,860 131,396 5,877,670 (6,651,697) 1,447,007
Issuance of common stock pursuant
to employee benefit plan.......... - - 27,847 834 35,500 - 36,334
Issuance of common stock upon
exercise of employee stock
options........................... - - 20,000 600 21,338 - 21,938
Issuance of common stock........... - - 190,476 5,715 244,285 - 250,000
Net loss........................... - - - - - (364,893) (364,893)
-------- ---------- --------- -------- --------- ---------- ---------
Balance at September 30, 1997...... 20,896 $2,089,638 4,618,183 $138,545 6,178,793 (7,016,590) 1,390,386
-------- ---------- --------- -------- --------- ---------- ---------
-------- ---------- --------- -------- --------- ---------- ---------
</TABLE>
(UNAUDITED)
4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
----------- ---------
Cash flows from operating activities:
Net loss....................................... $ (364,893) (163,770)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase in deferred franchise sales
revenue................................... 281,500 442,200
Franchise sales revenue recognized-center
openings.................................. (172,201) (75,400)
Increase in deferred franchising costs..... (82,762) (88,046)
Franchise costs recognized - center
openings.................................. 41,209 20,985
Provision for credit losses................ 82,141 90,107
Depreciation and amortization.............. 711,588 695,465
Undeveloped franchise licenses canceled.... - (27,563)
Loss on sale/disposition/closure of
centers................................... 275,476 55,752
Accrual of Consultant Agreement............ 357,113 -
Other, net................................. 372 (9,193)
Change in assets and liabilities:
Increase in accounts receivable.......... (168,364) (249,705)
Decrease (increase) in notes receivable.. 283,977 (7,016)
Increase in inventories.................. (14,051) (85,417)
Decrease (increase) in prepaid expenses
and supplies............................ 52,382 (39,188)
Increase (decrease) in accounts payable.. (158,604) 202,241
Increase in accrued salaries and wages
and other liabilities................... 54,570 125,104
----------- --------
Net cash provided by operating activities.. $ 1,179,453 886,556
----------- --------
(UNAUDITED)
(continued on next page)
5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
----------- ---------
Cash flows from investing activities:
$ 150,081 130,398
Principal receipts on direct financing leases
Acquisition of centers......................... (573,249) (394,389)
Sale of centers................................ 116,901 31,573
Capital expenditures........................... (249,605) (681,922)
Decrease (increase) in other assets............ (113,709) 2,713
----------- ---------
Net cash used in investing activities.... (669,581) (911,627)
----------- ---------
Cash flows from financing activities:
Proceeds from long-term obligations............ 3,045,000 842,000
Principal payments on long-term obligations.... (3,101,022) (359,463)
Principal payments on capital lease
obligations.................................. (306,821) (253,541)
Issuance of common stock....................... 271,938 -
Payment of accumulated dividends
upon conversion of preferred stock to common
stock........................................ - (729)
Decrease (increase) in restricted cash......... 34,927 (2,224)
Increase in lease deposit obligations.......... 2,306 4,500
----------- ---------
Net cash provided by (used in)
financing activities.................... (53,672) 230,543
----------- ---------
Net increase in cash............................. 456,200 205,472
Cash, beginning of period........................ 324,745 385,167
----------- ---------
Cash, end of period.............................. $ 780,945 590,639
----------- ---------
----------- ---------
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest.... $ 891,569 802,906
----------- ---------
----------- ---------
(UNAUDITED)
6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the interim financial statements include all
adjustments, consisting of normal recurring adjustments, necessary in order
to make the financial statements not misleading.
2. Grease Monkey Holding Corporation ("GMHC") and its wholly-owned
subsidiaries, Grease Monkey International, Inc. ("GMI") and GM Properties,
Inc. ("GMP") are collectively referred to as the "Company". The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for financial
statements. For further information, refer to the audited consolidated
financial statements and notes thereto for the year ended December 31, 1996,
included in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 28, 1997.
3. The results for the three-month and nine-month periods ended September 30,
1997, are not necessarily indicative of the results to be expected for the
entire fiscal year of 1997.
4. STOCKHOLDERS' EQUITY
On January 20, 1997, Charles E. Steinbrueck, President and Chief Executive
Officer, entered into an agreement to purchase 190,476 newly issued shares
of the Company's common stock at $1.3125, the last trade price on January
20, 1997, for a total consideration of $250,000.
The Company's Series C, 6% cumulative, preferred stock is redeemable at the
option of the Company upon 60 days prior written notice. At the option of
the holder, at any time prior to the close of business on the redemption
date, each share of Series C Preferred stock, plus any accumulated unpaid
dividends, may be converted into shares of common stock at a conversion
price of $2.50 per share of common stock. On September 30, 1997,
accumulated unpaid dividends totaled $475,344.
The Company has an employee deferred compensation 401(k) plan and matches
employee contributions to this plan in an amount equal to 50% of the
employees' contribution, up to a maximum of 6% of the employees'
compensation. The Company's contribution is paid with its $0.03 par value
common stock (net of forfeitures) valued at market on the date of the
contribution. During the first nine months of 1997 and 1996, the Company
contributed 27,847 and 30,007 shares to this plan at an average of $1.30
and $1.15 per share, respectively.
5. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined based on the number of
common and common equivalent shares outstanding and is adjusted for the
assumed conversion of shares issuable upon exercise of options and warrants,
after the assumed repurchase of common shares with the related proceeds
(anti-dilutive for all periods presented). Earnings (loss) per share for
all
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
periods was computed after reduction for preferred stock dividends
($31,602 for the third quarters of 1997 and 1996, and $93,776 and
$94,163 for the first nine months of 1997 and 1996, respectively). The
assumed conversion of preferred stock was anti-dilutive for all periods
presented.
6. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of
business. In the opinion of management, the outcome of these matters
will not have a material effect on the financial condition, results of
operations or cash flows of the Company.
7. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
The following table sets forth, by period, the amount and nature of amounts
paid and received for the acquisition, sale (refranchising) and closure of
Company-owned Centers.
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
-------- ---------
Acquisitions of Centers:
Number of Centers purchased 2 2
-------- ---------
-------- ---------
Number of Centers foreclosed - 5
-------- ---------
-------- ---------
Receivables applied (net of related
allowance) $ - 251,328
Liabilities assumed 375,337 1,218,960
Cash paid 573,249 394,389
-------- ---------
Cost of assets acquired $948,586 1,864,677
-------- ---------
-------- ---------
Sales:
Number of Centers refranchised/
closed 6 * 4
-------- ---------
-------- ---------
Cash received $116,901 31,573
Notes received 26,800 124,776
Liabilities assumed by purchaser 40,875 39,750
Loss on sale 275,476 55,752
Operating/Marketing subsidies granted - (97,750)
Franchise fees 14,000 28,000
Franchise costs - (5,000)
-------- ---------
Net book value of Centers
refranchised/closed $474,052 177,101
-------- ---------
-------- ---------
* Includes one center which was originally developed to be a Company-owned
Center, but was sold to a franchisee prior to opening.
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the nine months ended September 30, 1997 and 1996, non-cash
transactions consisted of the Company issuing 27,847 and 30,007 shares
of common stock at an average value of $1.30 and $1.15 per share
respectively, in accordance with its matching requirement under the
Company's 401(k) plan. Other non-cash transactions during the first
nine months of 1997 included: the write-off of a direct financing lease
receivable and the corresponding capital lease obligation of $153,316
based on the franchisee re-negotiating the lease resulting in the
Company being released from the lease; a capital lease obligation of
$386,045 was recorded and a direct financing lease receivable and the
corresponding capital lease obligation of $83,619 was written off based
on the sale of the related Center to a third party. As a result of the
the sale, the landlord reduced the Company's obligation from a primary
lessor to a guarantor. Other non-cash transactions during the first
nine months of 1996 included: a settlement agreement with a franchisee,
who owned two Centers, whereby, $109,439 of net receivables, $7,000 of
lease deposits and one undeveloped license of $16,312, were exchanged
for a non-interest bearing note receivable discounted to $86,127 upon
the sale of the Centers to a new franchisee; a franchise license in the
amount of $7,392, net of deferred franchising costs of $2,222, was
cancelled and applied to a franchisee's accounts receivable balance and
a capital lease obligation of $368,000 was recorded.
8. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
(Statement 128). Statement 128 supersedes APB Opinion No. 15, EARNINGS
PER SHARE (APB 15) and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with
publicly held common stock or potential common stock. Statement 128 was
issued to simplify the computation of EPS and to make the U.S. standard
more compatible with the EPS standards of other countries and that of
the International Accounting Standards Committee. It replaces the
presentation of primary EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. Statement 128
is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not
permitted. The adoption of Statement 128 is not expected to have a
significant effect on the Company's reported earnings per share.
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported a net loss of ($364,893) for the first nine months
of 1997, as compared to a net loss of ($163,770) for the first nine months of
1996. For the third quarter of 1997, the Company recognized a net loss of
($281,205) compared to income of $30,204 for the same quarter in 1996.
Total revenue increased by $1,013,459 or 7% for the first nine months of
1997, compared to the first nine months of 1996. Revenue during the third
quarter of 1997 increased $140,558 over the same quarter last year, an
increase of 3%. The nine month increase is due primarily to increases in
royalty revenue and other revenue due to a settlement agreement entered into
with a former franchisee. Under the settlement agreement, the Company
recognized approximately $207,000 of royalty fees not previously recognized
and approximately $168,000 of other income related to the reimbursement of
costs previously expensed. For both the nine month and third quarter
periods, the Company experienced modest increases in revenue from center
openings and revenue from Company-owned Centers (the average number of
Company-owned Centers, based on number of months operated, remained
relatively constant). In addition, in the third quarter of 1997, other
income of approximately $99,000 was recognized based on a settlement with a
franchisee.
Royalty fees are a percentage of gross sales paid monthly by all
franchised Grease Monkey Centers. Royalty fee revenue for the first nine
months of 1997 increased by 11% compared to the first nine months of 1996 to
$2,659,034. Royalty fee revenue for the third quarter of 1997 increased
slightly compared to the third quarter of 1996 to $828,823. The nine month
increase is due to the recording of the settlement agreement with a former
franchisee, as discussed previously. Based upon many factors, including the
age of amounts owed the Company, the extent of collateralization, and
historical performance, the Company may place certain financially troubled
franchisees on a non-accrual status. For the first nine months of 1997,
estimated royalties of $89,700 were not accrued under this policy, compared
to $90,325 for the first nine months of 1996. During the third quarter of
1997, estimated royalties of $31,325 were not accrued compared to $28,450 for
the third quarter of 1996. The Company has a royalty rebate program for
franchisees under which eligible franchisees can receive a rebate of
royalties paid. For the first nine months of 1997, the rebate accrued under
this program was $182,712, compared to $194,051 for the first nine months of
1996. The rebate accrued for the third quarter of 1997, was $62,510,
compared to a rebate of $68,336 for the third quarter of 1996. The rebate is
recorded as a reduction in royalty revenue.
The Company recognized franchise sales revenue net of related costs of
$130,992 during the first nine months of 1997, representing fifteen Center
openings. For the third quarter of 1997, franchise sales net revenue was
$64,209, representing eight Center openings. The Company recognized
franchise sales net revenue of $54,415 for the first nine months and third
quarter of 1996, representing five Center openings. Franchise sales revenue
represents initial one-time payments received by the Company from buyers of
its franchises. The fee and any directly related costs are recognized as
revenue and expense when the related franchise Center opens for business.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
At September 30, 1997, the Company operated 30 centers as compared to 32
centers at September 30, 1996. For the first nine months of 1997, the
Company reported an operating margin (Company-owned Center sales less
expenses, excluding interest, depreciation and amortization) of $1,626,185 on
revenue of $11,216,333 at Company-owned Centers, as compared to an operating
margin of $1,560,609 on revenue of $10,881,425 for the same period last year.
This represents an increase of 3% in revenue and 4% in operating margin.
For the third quarters of 1997 and 1996, the Company reported operating
margins of $559,264 and $601,685 on revenue of $3,829,962 and $3,817,786,
respectively, representing an increase in revenue of less than 1% and a
decrease in operating margin of 7%.
On a same center basis, those Company-owned Centers operated continuously
over the period January 1, 1996 through September 30, 1997, representing 24
centers, had an operating margin of $1,406,024 on revenue of $8,931,982 for
the first nine months of 1997, as compared to an operating margin of
$1,410,709 on revenue of $8,745,660 for the first nine months of 1996. This
represents an increase of 2% in revenue and a decrease of less than 1% in
operating margin. The same center statistics for the third quarter of 1997
and 1996 were operating margins of $456,339 on revenue of $3,063,666 and
$528,259 on revenue of $3,006,792, respectively, representing an increase in
revenue of 2% and a decrease in operating margins of 14%.
In the first nine months of 1997, the Company realized marketing
allowances and gross margins on product and equipment sales of $350,746, as
compared to $332,822 in the first nine months of 1996. In the third quarter
of 1997, marketing allowances and gross margins on product and equipment
sales were $115,602, as compared to $112,930 in the third quarter of 1996.
Product and equipment revenue represents the sale of fluid dispensing
equipment and other supplies to franchisees, and marketing allowances relate
to the sale of oil filters, air filters, oil additives, and certain other
products. The number of center openings in a period impacts product and
equipment revenue, thus revenue for 1997 was above that of 1996.
General and administrative expenses for the first nine months and third
quarter of 1997 increased 15% or $506,545 and 10% or $113,155 as compared to
the first nine months and third quarter of 1996. The increase in the first
nine months of 1997 over 1996 is primarily a result of the accrual of the
Company's obligation under a Consultant Agreement with the Company's former
Chairman of the Board, President and Chief Executive Officer. The term of
the agreement is from March 4, 1997 through March 3, 1999. The agreement
requires the former executive to perform such duties and services as may be
assigned to him from time to time at the direction or request of the
Company's President and Chief Executive Officer. Under the agreement, the
former executive will be paid a monthly fee for the term of the agreement.
The Company is obligated to make the payments regardless of whether services
are requested or performed. General and administrative expenses for the
first nine months of 1997 include approximately $379,000 related to this
agreement. Other factors contributing to the increase in 1997 include: an
increase in the general and administrative expenses at the Company-owned
Center Division of approximately $106,000 for the nine month period and
$17,000 for the
(continued)
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
quarter; an increase in legal fees of approximately $56,000 for the nine
month period and $25,000 for the quarter; an increase in franchise
development expenses of approximately $61,000 for the nine month period and
$37,000 for the quarter; and severance expenses were incurred of
approximately $64,000 for the nine month period and $36,000 for the quarter.
Offsetting these increases was a decrease in litigation legal fees and
related costs of approximately $179,000 for the nine month period and $34,000
for the quarter.
Depreciation and amortization expense for the first nine months and third
quarter of 1997 remained constant to the periods in 1996. This is due to the
average number of Company-owned Centers operated during the periods remaining
relatively consistent.
Gain (loss) on sale/disposition/closure of Centers represents the net
results of the refranchising/disposal/closure of Company-owned Centers. When
the Company refranchises a Center, a franchise license fee is included in the
sales price and included in the resulting gain or loss on sale. The loss of
($300,392) for the nine months ended September 30, 1997, represents the
refranchising of two Company-owned Centers, the sale of one Center, the
closure of three Centers, and marketing allowances paid based on subsidies
granted certain franchisees on the refranchising of Company-owned Centers in
1996. In regards to the closure of three centers, during the quarter the
Company decided to close two under-performing Company-owned Centers and one
franchise center, (which was leased from the Company) resulting in $236,101
of the total $300,392. The loss is a result of costs associated with the
closing of the Centers, as well an impairment assessment at each location.
The loss of ($80,299) for the nine months ended September 30, 1996,
represents the refranchising of four Company-owned Centers.
In the first nine months of 1996, the Company recognized $27,563 in
franchise sales revenue resulting from license cancellations. There have
been no license cancellations in 1997.
Interest expense includes interest on debt financing and interest
recorded on capital leases of Company-owned Centers. The purchase of two
Company-owned Centers accounts for the majority of the increase in interest
expense due to additional borrowings to acquire the Centers. In addition,
the Company also entered into two capital leases (thus incurring interest
expense) at two Company-owned Centers. Interest expense in 1997 also includes
amortization of the discount on the Company's obligation under the Consultant
Agreement, which was initially recorded at its present value.
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
The following schedule summarizes the activity with regard to Grease Monkey
Company-owned Centers as well as Grease Monkey franchised Centers for the nine-
months ended September 30, 1997 and 1996.
<TABLE>
NINE MONTHS ENDED:
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
----------------------------- -----------------------------
COMPANY FRANCHISEE COMPANY FRANCHISEE
OWNED OWNED TOTAL OWNED OWNED TOTAL
------- ---------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Centers open, beginning 31 184 215 29 181 210
Centers opened (A) 1 15 16 - 5 5
Centers purchased 2 (2) - 2 (2) -
Centers sold (2) 2 - (4) 4 -
Centers terminated or
closed (2) (13) (15) - (5) (5)
Centers reacquired - - - 5 (5) -
-- --- -------- -- --- --------
Centers open, ending (B) 30 186 216 32 178 210
-- --- -------- -- --- --------
-- --- -------- -- --- --------
Vehicles serviced (000's) 2,171 2,139
-------- --------
-------- --------
Franchise licenses issued (C) 11 23
-------- --------
-------- --------
Undeveloped franchise
licenses (D) 50 52
-------- --------
-------- --------
Franchise applications
outstanding (D) 22 17
-------- --------
-------- --------
Franchise license/application
fees received (E) $281,500 $442,200
-------- --------
-------- --------
</TABLE>
(A) 1996 includes one franchised Center which was involved in a settlement with
the Company which resulted in the Company assuming possession of the Center
in April 1996 and thus no franchise revenue was recognized.
(B) Includes 20 franchised centers in Mexico in 1997 and 16 franchised centers
in Mexico in 1996.
(C) Represents the number of licenses issued during the period.
(D) Represents the number of licenses/applications outstanding at September 30.
(E) Represents amounts received for franchise licenses/applications during the
period.
(continued)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In September 1997, the Company entered into a $5,000,000 Loan Agreement
with a major bank. In connection with the Company entering into a Master Supply
contract with a motor oil supplier, the supplier agreed to guarantee the line.
Draws under the Loan Agreement shall be used for the purpose of paying off
certain debt, including the Company's current Loan Agreement and Fast Lube
Supply Agreement, and for acquiring, constructing and/or developing Company
Centers. Any draws are evidenced by notes which amortize over ten years and
bear interest at a rate provided under the Loan Agreement plus guarantee fees.
An initial draw of $2,620,000 was made on September 29, 1997, with interest at
9.26% plus guarantee fees.
In May 1996, the Company entered into a Business Loan Agreement with a
major bank for a $2,000,000 three year line of credit. Funds drawn under the
line are restricted to the development of new Centers. The Company has the
right to select an optional interest rate as described in the agreement,
however, in no case will the interest rate exceed the bank's reference rate. In
exchange for a supply agreement on any Centers built utilizing the line of
credit, a motor oil supplier agreed to guarantee the line. As of September 30,
1997, the Company had drawn approximately $415,000 under this line of credit of
which $190,000 is outstanding.
During April 1995, the Company entered into two agreements with a motor oil
supplier - a Loan Agreement and a Fast Lube Supply Agreement. Under the Loan
Agreement, as amended, a $2,481,000 line of credit was established. All loans
drawn under this line accrued interest at 9% per annum and were repaid in
quarterly installments over a ten year period from date of disbursement. The
line was secured by the assignment of real property, leases and lubrication
equipment of certain Company-owned Centers. The line was paid in full on
September 30, 1997.
The growth of the Grease Monkey system is dependent on the ability of the
Company and its franchisees to obtain real estate development capital.
Historically, Grease Monkey Centers have been built utilizing build-to-suit
services, whereby the land is purchased and the building is constructed to the
Company's specifications, then leased to the Company or to a franchisee, by a
third party. Recently, franchisees have moved toward purchasing and developing
the real estate for their own account, thereby creating greater value in their
business.
(continued)
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
LIQUIDITY
Cash provided by operations during the first nine months of 1997 was
$1,179,453 as compared to $886,556 in the first nine months of 1996. The most
significant factors contributing to this variance are the settlement agreement
entered into with a former franchisee and the non-cash accruals for the
Consultant Agreement (as described previously) and the non-cash portion of the
loss on sale/disposition/closure of Centers.
Cash used in investing activities was ($669,581) in the first nine months
of 1997, as compared to cash used in investing activities of ($911,627) in the
first nine months of 1996. Cash provided in both periods consisted primarily of
receipts on direct financing leases which increased slightly over the periods.
Additional cash was received in the first nine months of 1997 and 1996 with the
refranchising of three and four Company-owned Centers, respectively. Cash used
in investing activities for the first nine months of 1997 and 1996 consisted
primarily of cash used to purchase Centers. Additional cash was used in both
periods for capital expenditures, primarily Company Center equipment.
Additionally, cash was used in the first nine months of 1996 for the buy-out of
leases of automobiles used by field employees.
Cash used in financing activities was ($53,672) in the first nine months of
1997 as compared to cash provided by financing activities of $230,543 in the
first nine months of 1996. Cash provided by financing activities in the first
nine months of 1996 consisted primarily of proceeds from long-term debt related
to the purchase of automobiles (as described above), an equipment loan from a
motor oil supplier, and a draw on a line of credit for the financing of the
acquisition of two franchised Centers. Cash provided by financing activities in
the first nine months of 1997 consisted primarily of proceeds from long-term
debt and sale of common stock. Financing activities also included cash used to
reduce long-term debt and capital lease obligations of $3,407,843 in the first
nine months of 1997 and $613,004 in the first nine months of 1996.
The Company does not have any material commitments for capital
expenditures. The Company believes it has the capital resources and liquidity
necessary to meet all of the obligations, debt maturities, and commitments of
the Company during 1997.
15
<PAGE>
GREASE MONKEY HOLDING CORPORATION
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED SEPTEMBER 30, 1997
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to legal proceedings including claims by franchisees
against the Company that arise in the ordinary course of business. In the
opinion of management, the outcome of these matters will not have a material
effect on the financial condition, results of operations or cash flows of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
10. Material Contracts
(a) $5,000,000 Loan Agreement
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period covered by this report.
16
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMMISSION FILE NUMBER: 0-9812
QUARTER ENDED SEPTEMBER 30, 1997
FORM 10-QSB
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREASE MONKEY HOLDING CORPORATION
By: /s/ T. Timothy Kershisnik
-------------------------------------------
T. Timothy Kershisnik
Vice President, Controller, Treasurer and
Corporate Secretary
(Principal Financial and
Accounting Officer)
Denver, Colorado
November 14, 1997
17
<PAGE>
LOAN AGREEMENT
This Loan Agreement is dated as of September 29, 1997, and is entered into by
and between Grease Monkey International, Inc., a Colorado corporation
("Borrower"), and CITICORP LEASING, INC., a Delaware corporation ("Lender").
Borrower and Lender hereby agree as follows:
ARTICLE I
AMOUNT AND TERM OF THE LOAN
SECTION 1.01. THE LOANS. Lender agrees, upon compliance by Borrower with
all terms and conditions hereinafter set forth and set forth in the other
Loan Documents (as hereafter defined), to make advances of loan proceeds (the
"Advances") to Borrower from time to time, prior to September 28, 2000, in an
aggregate amount not to exceed the principal amount of $5,000,000.00, the
proceeds of which shall be used for the purpose of terminating Borrower's
current lubricant supply arrangement, and for acquiring, constructing and/or
developing properties to expand Borrower's express lube business locations
and to enter into and comply with the terms and conditions of a Master Supply
Contract with Mobil Oil Corporation.
Advances hereunder shall be evidenced by notes depending upon the timing and
nature of the disbursements to be made by Borrower. The first note of which
shall be dated September 29, 1997, (The "Buyout Note") and notes to be dated
as disbursed thereafter shall be designated notes A through J ("Expansion
Notes"), or any substitution, modification or amendment thereto
(collectively, hereinafter referred to as the "Notes"), the terms of which
are incorporated herein by this reference. One advance of up to $2,620,000
is permitted under the Buyout Note and as many additional advances are
permitted as are required by Borrower, subject to the terms and conditions of
the Agreement to Provide Guaranty and Reimbursement Agreement between
Borrower, Mobil Oil Corporation and Mobil Corporation dated September 29,
1997, (the "Agreement to Provide Guaranty"); PROVIDED HOWEVER, that no more
than one Advance under all the Notes collectively shall be made in any one
month. Each request for an Advance shall be accompanied by Borrower's
written Request for Advance, in the form of Exhibit "A" attached hereto.
SECTION 1.02. INTEREST AND REPAYMENT. The outstanding balance of each of
the Notes shall bear interest at the rate provided in such Note. Interest
and principal shall be payable pursuant to the terms of each of the Notes.
SECTION 1.03. INCREASED CAPITAL. If the Lender determines that
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law) affects or would affect the amount of capital required or expected to
be maintained by the Lender or any corporation controlling the Lender, and
that the amount of such capital is increased by or based upon the existence
of the Lender's commitment to lend hereunder and other commitments of this
type, then, upon demand by the Lender, the Borrower shall immediately pay to
the Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender in the light of such circumstances, to
the extent that the Lender reasonably determines such increase in capital to
be allocable to the existence of the Lender's commitment to lend hereunder.
A certificate as to such amounts submitted to the Borrower by the Lender
shall, in the absence of manifest error, be conclusive and binding for all
purposes.
1
<PAGE>
SECTION 1.04. PAYMENTS. Borrower shall make all payments hereunder not
later than 11 a.m., Colorado time, on the date when due in U.S. dollars
through the Disbursing Account, as provided and defined in Section 4.01(h)
for the account of Lender. All payments, whenever made, shall be applied
equally across all notes and shall be applied first to accrued and unpaid
interest, expenses or fees and the remainder of any payment shall be applied
to principal and other amounts then due. Borrower agrees to pay to Lender
upon Lender's demand any amount required to compensate Lender for any
additional losses, costs, or expenses Lender may incur as a result of any
late payment, including any delay in payments from the Disbursing Account.
AMOUNTS REPAID OR PREPAID HEREUNDER MAY NOT BE REBORROWED.
ARTICLE II
CONDITIONS OF LENDING
SECTION 2.01. CONDITIONS PRECEDENT TO ANY AND ALL ADVANCES. The
obligation of Lender to make the initial Advance, or any subsequent Advance,
is subject to the condition precedent that Lender shall have received, unless
otherwise waived in writing by Lender, on or before the day of the proposed
Advance all of the following, each in form and substance satisfactory to
Lender:
(a) The Notes;
(b) The Guaranty ("Guaranty") of Mobil Corporation (the "Guarantor"); and
(c) Authorization required under Section 4.01(h) authorizing the Investor
Agent to debit the Disbursing Account for the payments of all amounts due
under the Loan Documents (this Loan Agreement, the Notes, and the Guaranty
and any other instruments executed by any of the parties hereto pursuant to
this Loan Agreement, are all collectively referred to herein as the "Loan
Documents" together with the following items (d) through (g):
(d) Evidence of Borrower's good standing and qualification to do business;
(e) Evidence of Borrower's and any Guarantor's approval of the execution,
delivery and performance of each Loan Document to which it is a party;
(f) As applicable, copies of Borrower's and any Guarantor's articles of
incorporation, by-laws or partnership agreement; and
(g) Such additional documents, agreements and certificates as Lender shall
from time to time reasonably require.
SECTION 2.02. ADDITIONAL CONDITIONS PRECEDENT TO ANY ADVANCE. The
obligation of Lender to make any Advance (including, without limitation, the
initial Advance and any other Advances) shall be subject to the further
conditions precedent that on the date of each proposed Advance all of the
following statements shall be true and requirements satisfied:
(a) The representations, warranties and covenants of this Loan Agreement,
and those contained in the Loan Documents are correct in all material
respects on and as of the date of each proposed Advance as though made on
and as of such date;
2
<PAGE>
(b) No event has occurred and is continuing, or would result from the
Advance, which constitutes an Event of Default (as hereinafter defined) or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both;
(c) No material adverse change has occurred and is continuing, in the
business, condition (financial or otherwise), operations, performance or
properties of Borrower or any guarantor on or as of the date of the
Advance; and
(d) Borrower shall submit and be in compliance with the provisions of
Exhibit A.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 3.01. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants as follows:
(a) NO VIOLATION. The execution, delivery and performance by Borrower of
this Loan Agreement and any other loan document to which it is a party do
not violate any provision of any law or regulation, or result in a breach
of or constitute a default under any contract, obligation, indenture or
other instrument to which Borrower is a party or may be bound.
(b) AUTHORIZATION AND VALIDITY. This Loan Agreement, and the other Loan
Documents, and any other contracts or instruments executed by Borrower in
connection with this Loan Agreement, have been duly executed and delivered,
constitute legal, valid and binding agreements of Borrower enforceable in
accordance with their respective terms and are not subject to any dispute,
offset, counterclaim or defense. Except for the prior encumbrances listed
in Schedule A ("Prior Liens"), attached to this Loan Agreement, no approval
or other action of any governmental authority or any third party is
required for the entering into and performance by Borrower of the Loan
Documents.
(c) LITIGATION. Except as set forth in Schedule B, there are no pending
or threatened actions, claims, investigations, suits or proceedings before
or any writs, orders, injunctions or decrees of any governmental authority,
court or administrative agency in excess of $50,000 which may adversely
affect the business, condition (financial or otherwise), operations,
performance, properties or prospects of Borrower, other than those
disclosed by Borrower to Lender in writing.
(d) TAX RETURNS. Borrower has no pending assessments or adjustments of
taxes or similar charges or impositions imposed on Borrower, including,
without limitation, taxes directly imposed on Borrower and taxes that
Borrower is otherwise obligated to collect (including, without limitation,
sales and withholding taxes), except for those which it is contesting in
good faith in a proper proceeding. Borrower has filed all applicable tax
returns required to be filed by it and has paid all taxes which have become
due pursuant to said returns and warrants that such returns properly
reflect the United States and applicable state, municipal and other tax
liability of Borrower for the periods covered.
3
<PAGE>
(e) NO SUBORDINATION. Except for the Prior Liens, there is no agreement,
indenture, contract or instrument to which Borrower is a party or by which
Borrower may be bound that requires any of Borrower's obligations subject
to this Loan Agreement to be subordinated in right of payment to any other
obligation of Borrower.
(f) OTHER OBLIGATIONS. Borrower is not in default on any obligation or any
other material lease, commitment, contract, instrument or obligation.
(g) TITLE, LIENS AND ENCUMBRANCES. Except for the Prior Liens, Borrower
has, or will have prior to the pledge thereof, good and marketable title to
all real and personal property purporting to secure Borrower's obligations
under this Loan Agreement and the other Loan Documents, and there exists no
lien, security interest claim or encumbrance on such property, except those
created hereby and those expressly consented to by Lender in writing.
(h) SOLVENCY. After giving effect to each Advance: (i) the assets of
Borrower, at fair valuation, exceed its liabilities, (ii) the capital of
Borrower is not unreasonably small to conduct its business, and (iii)
Borrower has not incurred debts, and does not intend to incur debts, beyond
its ability to pay such debts as they mature.
(i) INFORMATION. All factual information (including, without limitation,
the application for the Advances) provided by or on behalf of Borrower to
Lender is true and accurate as of the date on which it is dated or
certified and is not incomplete by omitting to state any material fact
necessary to make such information not misleading. Each financial
statement delivered by Borrower to Lender is complete and correct, fairly
presents the financial condition of Borrower, and was prepared in
accordance with generally accepted accounting principles. Since the date
of each such financial statement, there has been no material adverse change
in the business, condition (financial or otherwise), operations,
performance, properties or prospects of Borrower, nor has Borrower
mortgaged, pledged or granted a security interest or encumbered any of its
assets or properties except as permitted by this Loan Agreement.
(j) COMPLIANCE WITH LAW. Borrower and all express lube locations that
Borrower operates in the Denver, Colorado area (the "Company Operated
Locations") are in compliance in all material respects with all applicable
law (including, but not limited to, environmental law, health, safety,
pension and labor laws). Borrower has no material unfunded pension
liability with respect to any pension or employee benefit plan for
employees of Borrower or any affiliate of Borrower. Except as previously
disclosed to Lender in writing, hazardous substances have not been released
or disposed of on any Company Operated Location in any manner or quantity
that could reasonably be expected to result in material liability of
Borrower or cause any Company Operated Location to be subject to any
restrictions on ownership, occupancy, use or transferability under any
environmental laws and no circumstances exist that may reasonably be
expected to form the basis of an environmental claim against Borrower. For
purposes of this Paragraph, "material" means any claim in excess of
$50,000.
(k) COLLATERAL. Except for the Prior Liens, Borrower is, or will be, the
legal and beneficial owner of any collateral pledged under this Loan
Agreement free and clear of any lien, security interest, option or other
charge or encumbrance and the collateral is not covered by any financing
statement, except for: (i) liens for current taxes not delinquent, and (ii)
the security
4
<PAGE>
interest granted herein.
(1) LEGAL STATUS. Borrower is a corporation organized and in good
standing under the laws of the State of Colorado, and is qualified or
licensed to do business, and is in good standing as a foreign corporation,
if applicable, in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects
of Borrower.
(m) CORPORATE MATTERS. The organization documents of Borrower, including,
without limitation, its charter and bylaws and any resolutions of its
shareholders authorizing Borrower to enter into this Loan Agreement, and
the transactions contemplated thereby have not been amended, modified,
repealed, or otherwise rendered ineffective since the date thereof in any
manner that would have a material adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects
of Borrower.
ARTICLE IV
COVENANTS OF BORROWER
SECTION 4.01. AFFIRMATIVE COVENANTS. So long as any obligation hereunder
or under any Note shall remain unpaid, Borrower will, unless Lender shall
otherwise consent in writing:
(a) PUNCTUAL PAYMENTS. Punctually pay the interest and principal as
expressed in the monthly payment of each of the Notes at the times and
place and in the manner set forth therein; any fees or other liabilities
due hereunder at the times and place in the manner specified herein. In
the event of multiple notes, Borrower shall combine all monthly payments
into one monthly payment. Any shortages in monthly payments so combined
shall be applied equally across all notes and will be applied first to
interest, then to any other fees or amounts due under the notes and finally
to principal.
(b) MAINTAIN EXISTENCE AND BUSINESS AND COMPLY WITH LAWS. Borrower will:
(i) maintain its existence and all necessary licenses, permits, franchises
and qualifications necessary to operate its business (including, without
limitation, all of the foregoing as required under all environmental laws),
(ii) comply with its organizational documents and applicable laws, rules,
regulations, orders and requirements for the maintenance of Borrower's
insurance, licenses, permits and governmental approvals, (iii) maintain
adequate books and accounts in accordance with generally accepted
accounting principles, (iv) pay rents, royalties, taxes and other
liabilities when due, (iv) own or lease sufficient equipment for the
operation of its business, and (v) maintain its business facilities in good
condition to permit its continuing operations.
(c) INSURANCE. Borrower will maintain insurance of the types and in
amounts customarily carried by businesses similar to Borrower's and keep
the collateral insured against such risks, with such limits as are
customary, but in no event less than the balance outstanding under this
Loan Agreement.
(d) DISPOSITION OF COLLATERAL. Borrower will defend the collateral
against all claims and demands at any time claiming the same or any
interest therein. Borrower will immediately
5
<PAGE>
notify Lender in writing of any change of address from that shown in this
Loan Agreement. Upon demand, Borrower will furnish to Lender such further
information and will execute and deliver to Lender such financing
statements, mortgages and other papers and will do all such acts and things
as Lender may at any time or from time to time reasonably request and/or as
may be necessary or appropriate to comply with or accomplish the covenants
and agreements contained in the Loan Documents, including, without
limitation, establishing and maintaining a valid perfected first priority
security interest in the collateral. Borrower will not permanently remove
any collateral from the locations specified herein without prior written
notice to Lender of the location or locations to which Borrower desires to
remove the collateral. Borrower will keep the collateral in good order and
repair, will not waste or destroy the collateral or any part thereof, and
will not use or permit anyone else to use the collateral in violation of any
applicable law or policy of insurance thereon. Borrower will permit Lender,
upon written approval in advance from Borrower, to examine and inspect the
collateral and Borrower's books and records wherever located at any
reasonable time or times.
(e) INFORMATION. Borrower will furnish Lender with such financial, tax,
accounting and other information with respect to Borrower as Lender may
from time to time reasonably request.
(f) NOTICE TO LENDER. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give notice in writing
to Lender of: (a) the occurrence of any Event of Default, or any condition,
event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default; (b) any change in the name (or
the organizational structure) of Borrower; (c) any termination or
cancellation of any insurance policy which Borrower is required to
maintain; or (d) any uninsured or partially uninsured loss through
liability or property damage, or through fire, theft or any other cause
affecting Borrower's property in excess of an aggregate of $10,000.00.
(g) FURTHER ASSURANCES. At its own expense upon written direction from
Lender, to do all further acts and execute, acknowledge and deliver all
instruments and assurances reasonably necessary or proper to comply with or
accomplish the covenants and agreements contained in this Agreement.
(h) DISBURSING ACCOUNT. Borrower will maintain: (i) an account
("Disbursing Account") with a commercial bank that shall be a member of the
automated clearing house system (the "ACH System"), and (ii) such
authorizations as may be necessary to enable Lender or its designated
collecting agent to obtain payments due under this Loan Agreement from the
Disbursing Account through the ACH System. Borrower shall not terminate
the Disbursing Account or such authorizations at any time during the term
of this Loan Agreement without having provided 60 days' prior written
notice thereof to Lender, which notice shall specify the institution at
which a substitute Disbursing Account has been established and the account
number of such substitute Disbursing Account, and certifying that all
authorizations necessary to enable Lender or its collection agent to obtain
payments due under this Loan Agreement from such substitute Disbursing
Account through the ACH System have been given and are then in effect. By
not later than the opening of business on each day that any payment shall
be due under this Loan Agreement, Borrower shall cause an amount, in
immediately available funds, equal to such payment to be available for
withdrawal from the Disbursing Account by
6
<PAGE>
the Lender or its collection agent.
(i) COMPLIANCE CERTIFICATE. Borrower will provide a copy of Exhibit B and
any necessary supporting documents to Lender and Guarantor prior to each
Advance under any note.
SECTION 4.02. NEGATIVE COVENANTS. So long as any obligation hereunder or
under any of the Notes shall remain unpaid, Borrower will not, without the
written consent of Lender:
(a) NO LIENS, ETC.. Borrower will not create nor permit to exist any lien
or security interest in the collateral, except for liens for current taxes
not delinquent, until such time as this Loan Agreement is terminated and
all amounts due under any of the Notes are paid in full.
(b) RESTRICTIONS ON DISPOSITION OF ASSETS. Except as specifically
permitted under the Agreement to Provide Guaranty, Borrower will not: (i)
sell, transfer, lease or otherwise dispose of all or (except in the
ordinary course of business) any material part of its assets related to the
Company Operated Locations or to the express lube locations financed by an
Advance (the "New Locations"), or (ii) enter into any sale, lease back or
bulk transfer transaction involving its properties or assets related to the
Company Operated Locations or New Locations.
(c) RESTRICTIONS ON OPERATING AND FINANCIAL CONDITIONS. Permit, allow,
approve, endorse or otherwise suffer to exist a material adverse change in
the business, condition (financial or otherwise), operations, performance
or properties of the Borrower.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under this Loan Agreement:
(a) FAILURE TO PAY. Borrower shall fail to pay any monthly principal and
interest payment in full on any Note within ten (10) days of when due, or
shall fail to pay any other sum owing under any of the other Loan Documents
within ten (10) days of notice from Lender;
(b) FAULTY REPRESENTATIONS. Any representation or warranty made by
Borrower or any of its officers under or in connection with any Loan
Document shall prove to have been incorrect, false or misleading in any
material respect when made;
(c) BUSINESS CHANGE. Borrower shall at any time suffer a material adverse
change in its business, condition (financial or otherwise), operations,
performance or properties;
(d) FAILURE TO PERFORM. Borrower shall fail to perform or observe any of
the covenants or agreements contained in any Loan Document on its part to
be performed or observed and any such failure shall remain unremedied for
twenty (20) days after written notice thereof shall have been given to
Borrower by Lender provided that if more than twenty (20) days are required
for remedy, Borrower shall not be in default if it commences remedy within
the twenty (20) day period and diligently pursues its completion;
7
<PAGE>
(e) FAILURE TO MEET OTHER OBLIGATIONS. Borrower shall fail to pay debts
as they become due and payable or any interest or premium thereon, when due
or any other default under any agreement or instrument relating to any such
debt or any other event, shall occur if the effect of such default or event
is to accelerate, or to permit the acceleration of, the maturity of such
debt the effect of which would have an adverse material effect on Borrower;
(f) INSOLVENCY. Borrower or any Guarantor shall generally not pay its or
their debts, as such debts become due, or shall admit in writing its
inability to pay its debts, generally winding up or composing or
readjusting such debt, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against Borrower
or any of its subsidiaries or any affiliates seeking to adjudicate it as
bankrupt or insolvent, which proceedings are not dismissed within 60 days,
or seeking liquidation, dissolution, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
shall apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, or liquidator of Borrower or
any Guarantor or any one of them or of all or any substantial part of the
property of any one of them, or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property; or
Borrower or any of its subsidiaries shall take any action to authorize any
of the actions set forth above in this subsection.
(g) MONEY JUDGMENTS. Any judgment or final order for the payment of
money, the payment or non-payment of which would have a material adverse
effect on Borrower, shall be rendered against Borrower and (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order and (ii) there shall be a period of ten (10) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal, continuance of such case or proceeding or otherwise, shall
not be in effect, unless the validity thereof shall be continually
contested in good faith, by appropriate proceedings diligently pursued.
Borrower shall have set aside on its books adequate and properly designated
reserves satisfactory to Lender with respect thereto;
(h) MATERIAL CHANGE IN LOAN DOCUMENT. Any material provision of any Loan
Document shall for any reason cease to be valid and binding on any party
thereto and such invalidity cannot be remedied within ten (10) days;
(i) DEFAULT IN BUSINESS OPERATIONS. Borrower shall default in the
performance of any material obligation or payment owing under any of
Borrower's franchise licenses or franchise agreements which default would
have a material adverse effect on Borrower; or
(j) GUARANTY REVOKED. Any Guarantor shall purport to revoke, terminate or
otherwise not be bound by the Guaranty as to any future Advances or
indebtedness.
SECTION 5.02. REMEDIES. Upon the occurrence of an Event of Default,
referred to in Section 5.01(f), all amounts payable under the Notes shall
become forthwith due and payable and the Lender's obligation to make advances
shall terminate. Lender shall have all the remedies hereinafter provided and
upon the occurrence of any other Event of Default, Lender may, without notice
or demand, exercise any one or more of the following remedies: (i) terminate
this Agreement; (ii) declare
8
<PAGE>
the Notes and all amounts payable thereunder and under this Agreement to be
forthwith due and payable, whereupon the Notes, and all such amounts shall
become and be forthwith due and payable, without presentment, demand, notice,
protest or further notice of any kind, all of which are hereby expressly
waived by Borrower; (iii) assert payment pursuant to the Guaranty; and (iv)
exercise any other right or remedy which may be available to Lender under any
applicable law or proceed by appropriate court action to enforce the terms
hereunder or recover damages for the breach hereof. The foregoing remedies
are cumulative and in addition to, and not exclusive of, any other remedies
and rights of Lender under applicable law, the Loan Documents or otherwise.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. AMENDMENTS, ETC.. No amendment or waiver of any provision
of the Loan Documents nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in writing and
signed by Lender and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 6.02. NOTICES. ETC.. All notices and communications required or
permitted under this Agreement shall be in writing and shall be delivered by
hand, by facsimile transmission, by registered or certified mail, postage
prepaid, or by overnight courier, addressed as follows:
If to Borrower:
Grease Monkey International, Inc.
216 Sixteenth Street, Suite 1100
Denver, Colorado 80202
Financial and Legal Departments
If to Lender:
Citicorp Leasing, Inc.
2600 Michelson Drive, 12th Floor
Irvine, California 92612
Attn:
------------------------------
All notices and communications shall be effective upon the earlier of actual
receipt or, if delivered by mail, five days after being deposited in the
mail, postage prepaid and addressed as required by this Section 6.02. Either
party may, by written notice so delivered to the other, change the address to
which delivery shall thereafter be made.
SECTION 6.03. NO WAIVER; REMEDIES. No failure on the part of the Lender
to exercise, and no delay in exercising, any right under any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the
Loan Documents are cumulative and not exclusive of any remedies provided by
law.
SECTION 6.04. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistently applied, except as otherwise stated herein.
9
<PAGE>
SECTION 6.05. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on
demand all reasonable fees, costs and expenses with respect to negotiations
with Borrower or other creditors of Borrower arising out of any Event of
Default or circumstances which may give rise to an Event of Default and with
respect to presenting claims or otherwise participation or monitoring any
bankruptcy, insolvency or similar proceeding involving creditors rights
generally and any proceeding ancillary thereto, enforcement of the Loan
Documents upon default or otherwise and the other documents to be delivered
under the Loan Documents. Borrower also agrees that Lender may apply any such
fees, costs and expenses incurred or reasonably anticipated to be incurred
against any Advance hereunder to the extent that the funds in any security
deposit provided by Borrower to Lender are not sufficient to pay such fees,
costs and expenses. In addition, Borrower shall pay any and all stamps,
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of the Loan Documents and the other
documents to be delivered under the Loan Documents, and agrees to save Lender
harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 6.06. BINDING EFFECT: SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of Borrower and Lender and
their respective successors and assigns, except that Borrower shall not have
the right to assign its rights or obligations hereunder or any interest
herein without the prior written consent of Lender.
SECTION 6.07. SURVIVAL OF REPRESENTATIONS. All covenants, agreements,
representations and warranties made herein and in the other Loan Documents
shall survive the making of the Advances by Lender to Borrower herein
contemplated and the execution and delivery by the Borrower of the Notes and
shall continue in full force and effect so long as any portion of any Note
remains outstanding and unpaid.
SECTION 6.08. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute one and the same Agreement.
SECTION 6.09. INDEPENDENT PARTIES. Lender and Borrower are not and shall
not be considered as joint venturers, partners or agents of the other for
purposes of fulfilling the obligations of this Agreement and neither shall
have the power to bind or obligate the other. Lender shall not be liable for
any of the debts or other liabilities contracted by or due from Borrower and
Borrower shall hold Lender free and harmless therefrom.
SECTION 6.10. EFFECT OF WAIVERS. The waiver by Lender of any breach by
Borrower of any term, covenant or condition of this Agreement shall not be
deemed a waiver of any subsequent or continuing breach of the same or any
other term, covenant or condition.
SECTION 6.11. CONSTRUCTION. All reference herein in the singular shall
be construed to include the plural where applicable, and the masculine to
include the feminine or neuter gender where applicable, and all covenants,
agreements and obligations herein assumed by the parties shall be deemed to
be joint and several covenants, agreements and obligations. The captions
used in this Agreement are for identification only and are not part of this
Agreement.
SECTION 6.12. SEVERABILITY. In case any one or more of the provisions
contained in this
10
<PAGE>
Agreement, the Notes or other Loan Documents should be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
SECTION 6.13. ENTIRE AGREEMENT. This Agreement supersedes any and all
other oral or written agreements between the parties hereto with respect to
the subject matter hereof and, together with the other Loan Documents
executed concurrently herewith or subsequent hereto, contains all of the
covenants and agreements between the said parties with respect to said
matter. The parties acknowledge that no one nor any one on behalf of them,
has made any representations, inducements, promises or agreements, orally or
otherwise respecting the subject matter of this Agreement or respecting any
other subject matter, which are not embodied herein.
SECTION 6.14. CONFLICTING PROVISIONS. The provisions of this Agreement
are not intended to supersede the provisions of the other Loan Documents but
shall be construed as supplemental thereto. However, in the event of any
conflict or inconsistency between the provisions hereof and any provisions of
the other Loan Documents which cannot be reconciled using an interpretation
most favorable to Lender, it is intended that the provisions of this
Agreement shall control, except with respect to provisions in any Loan
Document required by applicable state law.
SECTION 6.15. WAIVER OF DEFENSES. Borrower agrees that in the event
that any of them is held or found to be a guarantor, surety or the equivalent
that each of them waives any and all right to assert against Lender any claim
or defense based upon an election of remedies by Lender which in any manner
impairs, effects, reduces, releases, destroys and/or extinguishes their
subrogation rights and/or their right to proceed against any Borrower or any
party for reimbursement and/or any other rights they may have against any
other person or security. Borrower waives any right to require Lender to (a)
proceed against any Borrower or other party; (b) proceed against or exhaust
any security held from any Borrower, or; (c) pursue any other remedy in
Lender's power whatsoever. Borrower waives any defense arising by reason of
any disability or other defense of any Borrower or by reason of the cessation
from any cause whatsoever of the liability of any Borrower. Borrower agrees
that nothing shall discharge or satisfy the liability of Borrowers hereunder
except the full payment and performance of all of Borrower's debts and
obligations to Lender with interest. Any and all present and future debts
and obligations of Borrower to each other are hereby waived and postponed in
favor of and subordinated to the full payment and performance of all
indebtedness of Borrower to Lender. All monies or other property of Borrower
at any time in Lender's possession may be held by Lender as security for any
and all obligations of Borrower to Lender no matter how or when arising,
whether absolute or contingent, whether due or to become due, and whether
under this Agreement or otherwise. Borrower waives all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, notices of default, notices of acceptance of this
Agreement and of the existence, creation or incurring of new or additional
indebtedness, notice of any and all favorable and unfavorable information,
whether financial or otherwise, about Borrower, heretofore, now, or hereafter
learned or acquired by Lender and all other notices to which Borrower might
otherwise be entitled, and the right to the marshaling of any assets prior to
any remedy being exercised by Lender hereunder.
SECTION 6.16. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Virginia
without regard to the conflict of laws provisions thereof.
11
<PAGE>
SECTION 6.17. PARTICIPATIONS. Lender shall have the right at any time
without the consent of Borrower to sell, assign, transfer, negotiate or grant
participations in all or part of the obligations of Borrower outstanding
under this Agreement or the Notes evidencing such obligations to Lender.
Lender may assign, as collateral or otherwise, to one or more banks
(including Federal Reserve Banks) or other entities all or a portion of its
rights (including, without limitation, right to payments of principal and/or
interest on the Notes) and/or obligations under this Agreement without notice
to or consent of Borrower. Borrower hereby acknowledges and agrees that any
such disposition will give rise to a direct obligation of Borrower to the
participant or assignee and the participant or assignee shall for all
purposes (except as herein provided), where relevant, hereof be considered to
be Lender.
SECTION 6.18. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
SECTION 6.19. CONSENT TO DISCLOSURE. Borrower agrees that any
information provided by Borrower pursuant to or in connection with the Loan
Documents and information regarding payments or defaults may be disclosed to
Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized and empowered officers as of the
date first above written.
GREASE MONKEY INTERNATIONAL, INC., ("BORROWER")
a Colorado Corporation
By: /s/ Charles E. Steinbrueck
Its: President and CEO
Address: 216 16th Street, Suite 1100
Denver, CO 80202
12
<PAGE>
CITICORP LEASING, INC., ("LENDER")
a Delaware corporation
By:
---------------------------
Its: Vice President
Address: 2600 Michelson Drive, Suite 1200
Irvine, CA 92612
READ, ACKNOWLEDGED AND AGREED TO BY THE GUARANTORS
------------------------ --------------------------
13
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
Quarters Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------ ---------------------------
1997 1996 1997 1996
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income (loss) $ (281,205) 30,204 (364,893) (163,770)
Dividends on preferred stock (31,602) (31,602) (93,776) (94,163)
----------- --------- ---------- ----------
Net income (loss) applicable to common stock $ (312,807) (1,398) (458,669) (257,933)
----------- --------- ---------- ----------
----------- --------- ---------- ----------
Common shares outstanding 4,618,183 4,369,251 4,618,183 4,369,251
Effect of using weighted average common
and common equivalent shares (175,999) (4,987) (233,381) (13,686)
Effect of shares issuable under common stock
warrants using the treasury stock
method * * * *
Effect of shares issuable under stock options
using the treasury stock method * * * *
----------- --------- ---------- ----------
Shares used in computing primary earnings
per share 4,442,184 4,364,264 4,384,802 4,355,565
----------- --------- ---------- ----------
----------- --------- ---------- ----------
Primary earnings per common share $ (0.07) ** (0.10) (0.06)
----------- --------- ---------- ----------
----------- --------- ---------- ----------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) $ (281,205) 30,204 (364,893) (163,770)
Dividends on preferred stock (31,602) (31,602) (93,776) (94,163)
----------- --------- ---------- ----------
Net income (loss) as adjusted $ (312,807) (1,398) (458,669) (257,933)
----------- --------- ---------- ----------
----------- --------- ---------- ----------
Shares used in computing primary earnings
per share 4,442,184 4,364,264 4,384,802 4,355,565
Effect of shares issuable upon conversion of
preferred stock * * * *
----------- --------- ---------- ----------
Shares used in computing fully diluted
earnings per share 4,442,184 4,364,264 4,384,802 4,355,565
----------- --------- ---------- ----------
----------- --------- ---------- ----------
Fully diluted earnings per common
share $ (0.07) ** (0.10) (0.06)
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</TABLE>
* Antidilutive
** Less than $.01 per share
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 780,945
<SECURITIES> 0
<RECEIVABLES> 1,914,194
<ALLOWANCES> 337,183
<INVENTORY> 862,404
<CURRENT-ASSETS> 3,264,543
<PP&E> 10,054,141
<DEPRECIATION> 3,986,281
<TOTAL-ASSETS> 16,166,404
<CURRENT-LIABILITIES> 2,765,097
<BONDS> 4,824,933
138,545
0
<COMMON> 2,089,638
<OTHER-SE> (837,797)
<TOTAL-LIABILITY-AND-EQUITY> 16,166,404
<SALES> 0
<TOTAL-REVENUES> 16,114,449
<CGS> 0
<TOTAL-COSTS> 15,674,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82,141
<INTEREST-EXPENSE> 555,525
<INCOME-PRETAX> (364,893)
<INCOME-TAX> 0
<INCOME-CONTINUING> (364,893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (364,893)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
